A: This can
be a little complicated. I strongly
suggest that you work with a competent professional on this matter.
You aren't the only ones
surprised by 1099C's. There are a lot of
them being sent out due to the poor economy.
Lenders, like the credit card companies, are required to send out these
1099's or face steep penalties. Realize
that they also send a copy to the IRS.
We have found some discrepancies in the 1099's. Discrepancies include amount of debt written
off, when the debt was written off and wrong taxpayer numbers.
Here is the deal on the
tax law: Debt that is canceled or
forgiven is considered taxable income. There are a couple of exceptions which is why you need to be working
with a competent professional. If you
can prove that the debt was discharged in bankruptcy or if you were insolvent
then you might meet the exception.
If you happen to meet one
of the exceptions you still need to recognize the 1099C on the tax return and
then explain why it was not taxable. If
you do not, you most likely will get a letter or visit from the IRS.
